Tax refund trap 2025: Beware of ‘extra refunds’ that could cost you everything in long run

ITR filing 2025: As the income tax return (ITR) filing season unfolds, many taxpayers eagerly await their refunds. But this year, a troubling trend is emerging—one that could end up costing filers far more than they gain. “Every year, during the ITR season, a number of people get tempted by offers promising ‘extra refunds’ beyond what they legitimately deserve,” warns CA Nitin Kaushik. “These schemes often involve false claims, inflated deductions, or manipulated income figures, which can backfire severely.”

The lure is simple: tax consultants promise to maximise refunds by claiming additional deductions or misreporting income. In exchange, they charge about 10% of the inflated refund amount as their fee. While this might seem like a quick way to get extra cash, it’s a ticking time bomb.

“Many filers don’t realise that the Income Tax Department has significantly upgraded its systems,” Kaushik explains. “Now, AI-driven technology automatically cross-verifies the returns with data from Form 16, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS). This means any discrepancies or fake claims are increasingly being flagged.”

Though refunds might be processed initially, trouble usually follows later. Taxpayers often receive notices under Section 143(1), demanding a refund reversal coupled with additional tax dues. In more severe cases, reassessments under Section 147 include penalties and interest on the shortfall.

“People risk losing the entire refund amount, facing penalties up to 200% on underreported income, and paying 1% interest per month until dues are cleared,” Kaushik warns. “On top of that, their profiles get red-flagged, which means intense scrutiny for several years to come.”

The consequences are not just financial but reputational as well. Once flagged, the taxpayer’s returns may be closely monitored, increasing the chance of future audits.

Kaushik stresses, “Tax shortcuts are not free money. What looks like an ‘extra refund’ today can turn into a massive liability tomorrow. Filing your taxes ethically and accurately isn’t just about compliance—it’s about protecting your financial future.”

He advises taxpayers to stay vigilant and avoid falling for too-good-to-be-true refund promises. “Always verify your return status online, correct any errors promptly, and steer clear of dubious tax consultants. The key is compliance over chaos.”

The Income Tax Department has simplified online ITR status checks, making it easier than ever to track your filing. Early detection of any issues can save you from hefty penalties down the line.

In Kaushik’s words, “If it sounds too good to be true, it probably is. Stay clean, file right, and avoid unnecessary risks.”

As this ITR season progresses, the message is clear—protect yourself from the “extra refund” trap. The peace of mind that comes with honest tax filing far outweighs any short-term gains from shady schemes.

Income tax refund 

Here’s a simple step-by-step guide to check your income tax refund status:

Using the Income Tax Portal:

Visit the Income Tax Department’s official website at eportal.incometax.gov.in/iec/foservices/.

Log in using your user ID and password.

Navigate to the ‘e-File’ tab, then click on ‘Income Tax Returns’ followed by ‘View Filed Returns.’

You’ll see a list of your current and past income tax returns along with their status.

Click on ‘View details’ next to the relevant return to see the refund status.

Using the NSDL Portal:

Go to the NSDL refund status page at nsdl.com/oltas/refund-status-pan.

Enter your PAN details, select the Assessment Year from the dropdown menu, and type in the Captcha code.

Choose the ‘Taxpayer Refund (PAN)’ option and click ‘Proceed.’

The next page will display the current status of your income tax refund.

Checking your refund status regularly helps you stay updated and resolve any issues promptly.